Iowa Watchdog

State budget review points out pension problem

By Paul Brennan | Iowa Watchdog

DES MOINES, Iowa — There’s good news and bad news in the new state budget.

First, the new state budget spends $171 million more than it takes in during the coming year.

Weirdly, that’s the good news.

“This is a sustainable budget. This is a budget making good progress,” State Auditor Mary Mosiman said when she released her final review of the budget for fiscal year 2015.

UNDERFUNDED AND VERY EXPENSIVE: As the final review of the new state budget points out, Iowa’s state retirement plans are underfunded. That’s doubling the cost of the plans for taxpayers, as the state tries to fill in the gap.

The state’s 746 million budget surplus will easily cover the shortfall, and the budget gap is smaller than it has been in previous years.

“We’re currently paying an additional $380 million (per year) to make up for the underfunding,” Gretchen Tegeler, executive director of the Taxpayer’s Association of Central Iowa, told Iowa Watchdog. “That makes the total taxpayer’s bill $760 million a year. And it’s estimated that with the current system in place, we’ll be paying that additional $380 million every year for the next 30 years.”

The state’s other two pension funds are in worse shape.

“The Judicial Retirement system is 71 percent funded, and the Peace Officers’ system is only 64 percent funded,” the review states.

“This is something legislators haven’t wanted to address. Especially not this year, since it’s an election year,” said Tegeler.

“Those estimates of underfunding are based on the methods and assumptions used by the pension systems. We know that others estimate the underfunding is much higher. Moody’s estimate of underfunding is twice what the IPERS own figure is,” said Tegeler, who served as budget chief for Governor Branstad in 1990s.

Still, there’s no sense of urgency among Iowa’s politicians to address the pension problem. Usually when the topic is raised, it is immediately pointed out that Iowa’s pension systems are in better shape than pension plans in many other states.

“We are in better shape than other states,” Tegeler said. “But just because you’re not the first horse in line for the glue factory is no reason to be happy.”